Form 1125-A Cost of Goods Sold (Rev. October 2016) OMB No. 1545-0123 ▶ Attach to Form 1120, 1120-C, 1120-F, 1120S, 1065, or 1065-B. Department of the Treasury ▶ Internal Revenue Service Information about Form 1125-A and its instructions is at www.irs.gov/form1125a. Name Employer identification number

1 Inventory at beginning of year ...... 1 2 Purchases ...... 2 3 Cost of labor ...... 3 4 Additional section 263A costs (attach schedule) ...... 4 5 Other costs (attach schedule) ...... 5 6 Total. Add lines 1 through 5 ...... 6 7 Inventory at end of year ...... 7 8 Cost of goods sold. Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or the appropriate line of your tax return. See instructions ...... 8 9a Check all methods used for valuing closing inventory: (i) Cost (ii) Lower of cost or market (iii) Other (Specify method used and attach explanation.) ▶ b Check if there was a writedown of subnormal goods ...... ▶ c Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) ...... ▶ d If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed under LIFO ...... 9d e If property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions . . Yes No f Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If “Yes,” attach explanation ...... Yes No

Section references are to the Internal Under this accounting method, inventory ending on or after December 31, 2000, has Revenue Code unless otherwise noted. costs for raw materials purchased for use average annual gross receipts of $10 in producing finished goods and million or less for the 3 prior tax years, (b) General Instructions merchandise purchased for resale are whose principal business activity is not an deductible in the year the finished goods or ineligible activity, and (c) whose business is Purpose of Form merchandise are sold (but not before the not a tax shelter (as defined in section 448 Use Form 1125-A to calculate and deduct year you paid for the raw materials or (d)(3)). See Rev. Proc. 2002-28, 2002-18 cost of goods sold for certain entities. merchandise, if you are also using the cash I.R.B. 815. Who Must File method). Uniform capitalization rules. The uniform If you account for inventoriable items in capitalization rules of section 263A Filers of Form 1120, 1120-C, 1120-F, the same manner as materials and supplies generally require you to capitalize, or 1120S, 1065, or 1065-B, must complete that are not incidental, you can currently include in inventory, certain costs incurred and attach Form 1125-A if the applicable deduct expenditures for direct labor and all in connection with the following. entity reports a deduction for cost of goods indirect costs that would otherwise be sold. • The production of real property and included in inventory costs. See the tangible personal property held in inventory Inventories instructions for lines 2 and 7. or held for sale in the ordinary course of Generally, inventories are required at the For additional guidance on this method business. beginning and end of each tax year if the of accounting, see Pub. 538, Accounting • Real property or personal property production, purchase, or sale of Periods and Methods. For guidance on (tangible and intangible) acquired for resale. adopting or changing to this method of merchandise is an income-producing • The production of real property and accounting, see Form 3115, Application for factor. See Regulations section 1.471-1. If tangible personal property by a corporation Change in Accounting Method, and its inventories are required, you generally for use in its trade or business or in an instructions. must use an accrual method of accounting activity engaged in for profit. for sales and purchases of inventory items. Qualifying taxpayer. A qualifying See the discussion on section 263A taxpayer is a taxpayer that, (a) for each Exception for certain taxpayers. If you uniform capitalization rules in the prior tax year ending after December 16, are a qualifying taxpayer or a qualifying instructions for your tax return before 1998, has average annual gross receipts of small business taxpayer (defined below), completing Form 1125-A. Also see $1 million or less for the 3 prior tax years, you can adopt or change your accounting Regulations sections 1.263A-1 through and (b) its business is not a tax shelter (as method to account for inventoriable items 1.263A-3. See Regulations section defined in section 448(d)(3)). See Rev. in the same manner as materials and 1.263A-4 for rules for property produced in Proc. 2001-10, 2001-2 I.R.B. 272. supplies that are not incidental. a farming business. Qualifying small business taxpayer. A qualifying small business taxpayer is a taxpayer that, (a) for each prior tax year

For Paperwork Reduction Act Notice, see instructions. Cat. No. 55988R Form 1125-A (Rev. 10-2016) Form 1125-A (Rev. 10-2016) Page 2 Specific Instructions Per-unit retain allocations. A cooperative Filers that use erroneous valuation is allowed to deduct from its taxable methods must change to a method Line 1. Inventory at Beginning of income amounts paid during the payment permitted for federal income tax purposes. Year period for the tax year as per-unit retain Use Form 3115 to make this change. If you are changing your method of allocations to the extent paid in money, For more information on inventory accounting for the current tax year, you qualified per-unit retain certificates, or valuation methods, see Pub. 538. For more must refigure last year's closing inventory other property with respect to marketing information on changes in the method of using the new method of accounting. Enter occurring during the tax year. A per-unit accounting for inventory, see Form 3115 the result on line 1. If there is a difference retain allocation is any allocation from a and the Instructions for Form 3115. cooperative to a patron for products between last year's closing inventory and Line 9a. Method of valuing closing marketed for him without reference to the the refigured amount, attach an inventory. On line 9a, check the method(s) cooperative net earnings. A qualified per- explanation and take it into account when used for valuing inventories. Under lower of unit retain certificate is any per-unit retain figuring any section 481(a) adjustment. cost or market, the term “market” (for certificate that the distributee has agreed normal goods) means the current bid price Line 2. Purchases to take into account at its stated dollar prevailing on the inventory valuation date amount. If you account for inventoriable items in the for the particular merchandise in the same manner as materials and supplies Nonqualified per-unit retain certificates volume usually purchased by the filer. For a that are not incidental, enter amounts paid redeemed this year. Include the amount manufacturer, market applies to the basic for all raw materials and merchandise paid in money or other property (except elements of cost—raw materials, labor, and during the tax year on line 2. The amount amounts already included as per-unit retain burden. If section 263A applies, the basic you can deduct for the tax year is figured certificates) to patrons to redeem elements of cost must reflect the current on line 8. nonqualified per-unit retain certificates. No bid price of all direct costs and all indirect Reduce purchases by items withdrawn deduction is allowed at the time of costs properly allocable to goods on hand for personal use. For a partnership, the issuance for a nonqualified per-unit retain at the inventory date. certificate. However, the cooperative may cost of these items should be shown on Inventory may be valued below cost take a deduction in the year the certificate Schedule K and Schedule K-1 as when the merchandise is unsalable at is redeemed, subject to the stated dollar distributions to partners. normal prices or unusable in the normal amount of the certificate. See section 1383. way because the goods are subnormal due Line 4. Additional Section 263A Also see the instructions for line 29h of to damage, imperfections, shopwear, Form 1120-C, U.S. Income Tax Return for Costs change of style, odd or broken lots, or Cooperative Associations, for a special rule If you elected a simplified method of other similar causes, including second- for figuring the cooperative's tax in the year accounting, enter on line 4 the balance of hand goods taken in exchange. The goods of redemption of a nonqualified per-unit section 263A costs paid or incurred during may be valued at the bona fide selling retain certificate. the tax year not includible on lines 2, 3, and price, minus the direct cost of disposition 5. Line 7. Inventory at End of Year (but not less than scrap value). Bona fide If you elected the simplified production See Regulations sections 1.263A-1 through selling price means actual offering of method, additional section 263A costs are 1.263A-3 for details on figuring the amount goods during a period ending not later than generally those costs, other than interest, of additional section 263A costs to be 30 days after inventory date. that were not capitalized under your included in ending inventory. If you account Lines 9c and 9d. LIFO method. If this is method of accounting immediately prior to for inventoriable items in the same manner the first year the Last-in, First-out (LIFO) the effective date of section 263A, but are as materials and supplies that are not inventory method was either adopted or now required to be capitalized under incidental, enter on line 7 the portion of extended to inventory goods not previously section 263A. For details, see Regulations your raw materials and merchandise valued under the LIFO method provided in section 1.263A-2(b). purchased for resale that was included in section 472, attach Form 970, Application If you elected the simplified resale the total on line 6 but was not sold during To Use LIFO Inventory Method, or a method, additional section 263A costs are the year. statement with the information required by generally those costs incurred with respect Form 970. Check the LIFO box on line 9c. to the following categories. Line 8. Cost of Goods Sold On line 9d, enter the amount of total • Off-site storage or warehousing. Enter the amount from line 8 on your tax closing inventories computed under return as follows. Filers of Form 1120, section 472. Estimates are acceptable. • Purchasing. 1120-C, 1120S, 1065, and 1065-B, enter If you changed or extended your • Handling, such as processing, cost of goods sold on page 1, line 2. Filers inventory method to LIFO and had to write assembling, repackaging, and transporting. of Form 1120-F, enter cost of goods sold up the opening inventory to cost in the year • General and administrative costs (mixed on Section II, line 2. of election, report the effect of the write-up service costs). Lines 9a Through 9f. Inventory as other income, on your applicable return, Line 5. Other Costs proportionately over a 3-year period that Valuation Methods begins with the year of the LIFO election. Enter on line 5 any costs paid or incurred Inventories can be valued at: during the tax year not entered on lines 2 • Cost, through 4. Attach a statement listing details of the costs. • Cost or market value (whichever is lower), or Special Rules for Cooperatives • Any other method approved by the IRS Cooperatives are allowed to deduct certain that conforms to the requirements of the per-unit retain allocations. Include these applicable regulations cited below. costs on line 5. Attach a statement listing However, if you are using the cash details of per-unit retain allocations paid in: method of accounting, you are required to • Qualified per-unit retain certificates, use cost. • Money or other property (except nonqualified per-unit certificates), and • Nonqualified per-unit retain certificates redeemed this year. Form 1125-A (Rev. 10-2016) Page 3

Note: Entities using the LIFO method that information. We need it to ensure that you The time needed to complete and file make an S corporation election or transfer are complying with these laws and to allow this form will vary depending on individual LIFO inventory to an S corporation in a us to figure and collect the right amount of circumstances. The estimated burden for nonrecognition transaction may be subject tax. business taxpayers filing this form is to an additional tax attributable to the LIFO You are not required to provide the approved under OMB control number recapture amount. See the instructions for information requested on a form that is 1545-0123 and is included in the estimates Form 1120, Schedule J, line 11. subject to the Paperwork Reduction Act shown in the instructions for their business Line 9e. If property is produced or unless the form displays a valid OMB income tax return. acquired for resale and the rules of section control number. Books or records relating If you have comments concerning the 263A apply to the corporation, cooperative, to a form or its instructions must be accuracy of these time estimates or partnership, or other applicable entity, retained as long as their contents may suggestions for making this form simpler, check the “Yes” box on line 9e. become material in the administration of we would be happy to hear from you. See any Internal Revenue law. Generally, tax the instructions for the tax return with Paperwork Reduction Act Notice. We returns and return information are which this form is filed. ask for the information on this form to carry confidential, as required by section 6103. out the Internal Revenue laws of the United States. You are required to give us the